The Good and the Bad of Today's PPI Release... December 9th, 2022

The BLS has released the November Producer Price Index Report. (historical releases)

The Producer Price Index for final demand advanced 0.3 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices also rose 0.3 percent in both October and September. (See table A.) On an unadjusted basis, the index for final demand moved up 7.4 percent for the 12 months ended in November. 

A little further in the report...

Product detail: The November advance in prices for final demand goods was led by a 38.1-percent jump in the index for fresh and dry vegetables. Prices for chicken eggs; meats; canned, cooked, smoked, or prepared poultry; and tobacco products also moved higher. Conversely, the gasoline index fell 6.0 percent. Prices for diesel fuel, residential natural gas, and primary basic organic chemicals also declined. [emphasis added]

Overall, a very good report, unless you are below average income. Which means food prices are not slowing anytime soon. Across the board, the total goods less foods and energy inputs is down, by an average of -0.3%, compared to -0.1% last month. Good news, with the energy components down -4.25%, compared to -3.2% last month. However, with energy down -4.25% and the total good, ex-F&E at -0.3%... guess what? Food jumped +0.4%, whereas last month it was down -3.2%.

Drought conditions are pushing up several categories. If the drought were to end tomorrow, it would still take several months to restock the supply chain. In the interim, expect grocery prices to continue upward, regardless of FED easing or tightening. 

If you are above average income and/or investing in stocks, etc., this report is indeed good news. On the other hand, if you are below average income, this report indicates some bare cupboards in the offing, in my humble opinion.

Remember most of the harvest is now in the bins, with feedstocks for livestock known and those livestock mostly culled to match that over winter feedstock. 

The outlook is not positive for a reduction in food inflation. Will energy prices continue to fall into the coming year? 

Natural Gas Situation in the United States

The Energy Information Administration released their weekly report today...

Nationally, not too bad for inventories, although some areas being lighter than others. 

Prices have slipped a bit over the past couple of weeks, which is good news.

Now for a mixture of international politics and trade. Europe has been screaming from the rooftops about the new U.S. legislation that benefits U.S. based manufacturers. If there was not a war in Ukraine, would that be such a "major" issue?

Much of Europe's industrial strength was derived from cheap Russian energy imports, especially natural gas. Since the invasion, prices of natural gas has mushroomed, with new contracts being written at much higher costs to European industry. Futures indicate this will continue for a couple of more years, at a minimum.

As a result, many European companies can no longer compete with the U.S. on a cost per unit basis and have publicly stated that moving of operations is a viable alternative. This is the hollowing out of the European industrial base, that is sometimes mentioned.

The new U.S. legislation may indeed have some WTI violations and may receive some minor "tweaks", but the uproar is a smokescreen to cover for what is about to transpire. European companies, heavily dependent on natural gas, will being shifting to the U.S., or somewhere with cheaper natural gas. 

Every good politician understands the importance of blame assignment. In this case, they are diverting the public's attention to a small blip in a trade document, and hope the public continues to blame the U.S. as their industrial based is hollowed out... due to high energy prices. Let's face it... many Europeans already blame the U.S. for everything bad that happens to them.

Certain publications that serve as mouthpieces for those countries' governments, are beating that drum really hard. 

Buckle up... It will be interesting, in my humble opinion.

Crude, Distillate, and Gasoline Inventories - Dec. 7th 2022

Another weekly EIA report.

Crude stocks fell another -5.1 M barrels, from last week; Distillates increased another +6.1M Barrels; and Gasoline increased +5.2M barrels.

SPR slipped -2M barrels since last week's estimate, but the Crude, Petroleum, Petroleum Products + SPR gained 4M barrels. 

Refining continues at a high rate of efficiency, as the inventory gasoline, distillates, etc. continued to grow. Even in spite of continued high exports of gasoline. Gasoline consumption slipped -7.8% from year ago levels on the 4 week average and -1.8% from previous week's average.

The national average for gasoline has slid -4.0% from last week and +1.5% above same time last year, which mirrors WTI crude from one year ago. 

Last week, I commented about my doubt of pump prices falling to the $3 level by Christmas. I was wrong and am happy about that incorrectness. I can now see it in the $2.95 nationally. The why is surprising to me, with consumption falling as fast as it is. Not sure what to make of that. 

Of course, my glass is half empty mindset, leads me to think bad thoughts. Best I can do, is hope for the best, but prepare for the worst.

Distillates and Diesel...

While there was some improvement, certain areas, such as New England... is not fully whole. No doubt the reason for this is being politicized, I am a bit wary of the motivations of behind the scenes actors... in regards to all this. Basically, A truth is not the same as the whole truth. A fact is not the same... as all the facts. 

Incomplete Data and Hyperbole!!

The BEA released the Personal Income and Outlays, October 2022, this morning..

I have highlighted the adjustments from last month's release. 

You can scroll down on each month's release to examine the adjustments. It is not uncommon to have these revisions, as they are estimates and with the arrival of more data, the estimates can be further refined. Sometimes, this can result in adjustments going back a few month, as indicated by the numbers underlined in red.

In other words... the estimate is based on incomplete data. What astounds me, is the hyperbole surrounding this single report, or any other, as some signal from God... that some FED reversal is imminent. 6.0% is triple a target of 2.0%. At least it used to be, in the days before FTX.

Yes, I understand the one month PCE ex F&E was 2.7% annualized. This past July, saw that figure at 0.8% annualized. So hush! The FED probably uses a lot of data points, as well as one of those magic eight balls.

Overall inflation rates are improving across the board and it is not impossible that a more normal rate of inflation could be upon us by next summer, based on current progression. However, is that due to recessionary pressures, Federal Reserve actions, global intrigue... or any combination? 

I dunno!

Crude, Distillate, and Gasoline Inventories - Nov. 30th 2022

Another weekly EIA report.

In a nutshell, Crude stocks fell -12.5M barrels; Distillates increased +3.5M Barrels; and Gasoline increased +2.7M barrels.

Gasoline consumption is slowing and after a slight rise a few weeks back... is resuming the downward trend. The price at the pump is also falling, although exports are keeping the prices from falling any faster. (See above chart for gasoline imports/exports) 

I have been reading reports of the national average falling below $3 by Christmas. I can see an average of $3.15, but any more is doubtful, imo. 

On the other hand, some hysteria over more potential OPEC+ cuts, a sudden drop in the dollar, and whatever the EU is about to do... will cause big problems in the energy market. Yet the futures seems to be holding steady. 

My guess is hysterical headlines make for great click bait. 

Quick Take on GDP Revision

 The BEA release.

Real gross domestic product (GDP) increased at an annual rate of 2.9 percent in the third quarter of 2022 (table 1), according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.6 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month.  In the advance estimate, the increase in real GDP was 2.6 percent. The second estimate primarily reflected upward revisions to consumer spending and nonresidential fixed investment that were partly offset by a downward revision to private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased more than previously estimated (refer to "Updates to GDP").

That is good news, except when delving into the details, although still not so bad... just not so optimistic going forward. 

              

Considering the size of PCE relative to overall GDP, the increase is more a product of overstating the advance GDP's drop in that category. Which is a good sign, if PCE is easing back into the traditional range and all the other categories begin pulling their weight.

It should be noted, however, that consumer spending has increasingly become a greater share of the GDP. How long can that continue?

 

Diesel and Gasoline, Nov. 23, 2022

 Another round of data from the EIA.gov...

Crude Inventories slipped -3.7M barrels, with distillates up +1.7M barrels and gasoline up +3.0M barrels. Prices did slip in all categories the past week.

Consumption slipped as well, after moving up two weeks straight.

Even distillate stocks edged up in all areas, except the left, er... west coast.

A lot seems to be hinging on December the 5th, and price caps. Not sure how that will work, or if it will work. It seems, it was telegraphed too far in advance and the opponent has been preparing a counter.

There is still 390.5M barrels of crude in the SPR, down -257.6M barrels from two years ago, or -39.7%. 

Of course, how much of that 390.5M barrels remaining is usable... is not fully known. It is stored in salt caverns and there will be some spoilage.